New focus on emerging markets
The emerging markets arena has been been performing well in the past few months and the interest on investment products covering these region is increasing among institutional investors.
When it comes to emerging market funds, investors are spoiled for choice, with more fund management houses launching new products focusing on different areas of the emerging market s universe.
Although there is comprehensive and detailed information on each specific type of funds investing in this area, until now there wasn’t a single source of information covering the different investment funds vehicles in the emerging market field.
Aimed at institutional investors, ABN Amro has launched emerging market funds directory covering five different types of funds: London stock exchange listed investment trusts (total assets of $8bn), US listed closed-end funds ($11bn), exchange traded funds ($6bn), offshore domiciled funds ($5bn) and funds listed in local exchanges ($3bn). In total the GEM Fund directory includes 278 different funds with total assets of $23bn
“If you think about this figure you realise that we are talking about a very big asset class,” says Mark James, senior fund analyst at ABN Amro’s global investment team in London. “We thought that, for those investors wanting to get information on these funds, it would very useful to be able to access a single source of information covering different types of funds investing in this market.”
He adds: “Investors have reacted very positively to this initiative . Not only those who have been investing in emerging markets for a long time but also those who are considering this area for the first time.”
The directory includes detailed information on each fund, covering asset allocation, liquidity, size, price and principal shareholdings. It’s divided in different sections taking into account geographical areas and sectors, highlighting the five largest funds in each section .
In terms of assets under management the largest fund included in the directory is the Tracker Fund of Hong Kong, managed by State Street Global Advisors Asia. Launched in 1999, this exchange-traded fund listed on the Hong Kong stock exchange has total net assets of $3,663m and invests in holdings in Hong Kong and China. The size of this fund places SSgA in first position in terms of assets under management in emerging market funds covered in the directory.
The investment house in second position in terms of emerging market funds assets is Templeton, with nine funds listed in the directory, amounting to $2,486m. Templeton manages three of the 10 largest funds covered by ABN Amro: Templeton Emerging Markets investment trust ($867m), Templeton Emerging Markets Income ($560m) and Templeton Dragon Income fund ($497m).
The third largest fund in the directory with $857m is the Mexico Fund. Managed by Impulsora del Fondo Mex SA and listed on the New York Stock Exchange, this fund was launched in 1981 and invests in equity securities on Mexico’s stock exchange. It is the largest fund in the Latin America section of the directory.
Chase Fleming Asset Management is the firm with most funds in the emerging markets arena, with 13 funds and total assets of $1,982m, followed by Morgan Stanley Dean Witter (12 funds, $2,253m) and Templeton and Foreign & Colonial both with nine funds and assets of $2,486m and $883m respectively.
At a time when the developed market indices are giving negative returns, the emerging market arena can be seen as very attractive investment opportunity, but when choosing funds investing in these regions investors are still concerned about the volatility of these markets. The China’s Shenzen ‘B’ index, so far the best performing index of the year, is now up to 200%. “If you compare this or any other emerging market indexes like Russia which is up to38% or Mexico up to 20%, with Nasdaq which is down 16% , you understand why these markets are attracting the interest of investors,” says James. “However, the key issue is to see it this situation continues like this for longer. If it does, the interest among institutional investors across Europe will grow. So it is just a question of wait and see in this outperformance continues.”
An interesting case to follow up is Greece. Greece was upgraded to developed market status in May and more investors are considering increasing their exposure in the country.
“A number of institutional investors want to invest in Greece because they follow a developed market index benchmark,” James. “Some of them might not have the expertise needed to buy equities and would rather pick up a couple of funds as the best way to enter this market.” Greece has a potential net inflow of developed market funds and 18 closed-end funds are already listed in Athens with total assets of $3bn as at the end of March.
Emerging market funds are becoming a relevant and viable alternative asset class and have been receiving significant inflows since the beginning of the year. However, it is too soon to say that these inflows will be sustainable in the future and investors are still cautious when it comes to increase their exposure to this asset class.
Most funds are still very young and have not long track records to take into consideration. But this is indeed a long-term field and some of the emerging regions will be the fastest-growing economies in the near future. Both fund managers and investors are aware of the potential gains, and new investment products and assets inflows are expected if the market continues to outperform.